Costs versus prices

A cynic is said to be someone who knows the price of everything and the value of nothing. The same could be said of economic illiterates, many of whom are in politics and the media.

Politicians who say that they are going to "bring down the cost of health care" or make housing "affordable" are confusing costs and prices. Often such politicians are themselves among the prime reasons why both health care and housing are so expensive.

Costs are not just prices arbitrarily put on things. Whether the economic system has prices or not, there are real costs for everything. Whether under capitalism, socialism, feudalism or any other system, the real cost of building a bridge are all the homes, factories and other structures that could have been built with the same labor and materials that went into building the bridge.

Even if the government provides the bridge "free" it is still not free to the society as a whole, which has fewer homes, factories, etc., as a result of spending the resources required to build the bridge. That is why economists say that there is no such thing as a free lunch.

When politicians talk about "bringing down the cost of health care" they do not mean that they have found a way to produce the same health benefits with less medicine or less time spent by doctors treating patients. They mean that they have some scheme for preventing these costs from being charged directly to the patient.

If these politicians were really going to bring down the cost of health care, they would have to do such things as stop so many medical resources from being diverted to enriching lawyers who win bogus lawsuits against doctors, hospitals and pharmaceutical companies. They would have to stop giving blanket subsidies to people who waste doctors' time with trivial ailments that they would ask their local pharmacist about if they had to pay a doctor out of their own pockets.

Politicians are not about to do any such things -- which is to say, they are not going to bring down the cost of health care. Health care is going to keep on costing us as much as ever, whether we pay the money to the doctors and hospitals directly or pay it to the Internal Revenue Service, which then routes it to the same places.

Passing laws controlling prices is a lot easier than actually reducing costs. That is why politicians have created all sorts of price controls for centuries -- usually with bad economic consequences, such as shortages, waste, waiting lists and quality deterioration. Whether the prices being controlled have been the prices of medical care, housing or numerous other things, these results have followed, time and again, in countries around the world.

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